The Baseline Magazine has an article titled "Outsourcing: What CIOs Need to Know" which suggests that there is a decline in outsourcing. The article refers to multiple reports from several consulting and information technology management companies specifically those by DiamondCluster International & The Hackett Group.

According to a July survey by DiamondCluster International, for instance, 9% of respondents employing onshore services and 8% using offshore services said they planned to cut levels of outsourcing this year.

The Hackett Group, an Atlanta-based research, benchmarking and business transformation services firm, is more bullish-predicting that I.T. outsourcing is thriving and will continue to do so for the foreseeable future.

It is followed by an interview with Scott Holland, Hackett Groups senior business advisor.

Here are some excerpts from the article:

Q: According to your research, the typical company dedicates just over 9% of their I.T. spending to outsourcing while companies with world-class I.T. organizations [companies that achieve top quartile performance across a range of efficiency and effectiveness metrics in Hackett's I.T. benchmark] spend more than 14% of their I.T. budgets on outsourcing. You also say outsourcing is growing, especially among world-class corporations. How specifically is that money being spent?

A: On technology infrastructure. World-class companies today outsource roughly about 50% of their technology infrastructure. The other area is application management. A little more than 20% of world-class companies outsource apps management.

Q: Where is the growth in outsourcing coming from?

A: The key here is that people are taking the commodity-based services, and really looking to drive costs out, either through an onshore outsource relationship or through offshore, low-cost labor. The world-class companies in particular are driving that low-cost labor model.

Q: Has there been a shift in terms of where outsourcing is going offshore?

A: Some of the large companies have Footprints that already exist in certain countries. Brazil is one that's coming up a fair amount, as are Hungary and Latin America, so we are seeing discussions outside the pure Indian model.

Q: How does it impact me, the CIO, if a company's business units are outsourcing business processes?

A: It depends on what's being outsourced. If their business unit is outsourcing something that's solely specific to them, a process that's unique to that business unit, you don't need to worry about it. But if there are feeders and interfaces to other various processes or components of workflow involved, than the CIO absolutely needs to know and ensure that those interfaces stay intact.

Q: Does the CIO need to worry about Sarbanes-Oxley controls in making outsourcing decisions?

A: Sure, you're still ultimately responsible for the systems or the data regardless of where it sits. SOX is definitely something you have to think about.

Q: Any last words of advice?

A: I think there's still too much of a focus on cost reduction. People sometimes don't take into account the impact on service or quality when outsourcing. If you're sourcing something that's a commodity, that's not a concern. But when you start looking at "high-touch" models such as customer service, you need to ask: Am I going to impact my quality of service or my customer intimacy as the result of outsourcing? You can't look at outsourcing as a pure cost play. Outsourcing should be viewed, yes, from a cost point of view, but also from a scalability point of view. You've got to look at this as something other than finding the cheapest provider.


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Prashanth Rai